⚖️John's Finance Corner: Fed Holds Rates Steady Amid Inflation Fears, Weakening Labor Market
The Federal Reserve concluded its latest meeting last week, opting to keep the Fed Funds Rate unchanged. While many are calling for cuts, Chair Jerome Powell emphasized the Fed’s dual mandate: maintaining price stability and promoting maximum employment. Despite recent signs of economic softening, inflation concerns—especially those tied to tariffs—are keeping the Fed cautious.
🏦 Fed’s Balancing Act: Inflation vs. Employment
- The Fed Funds Rate affects overnight lending between banks—not mortgage rates directly.
- Powell faces mounting pressure to cut rates, but remains focused on long-term stability.
- Tariff-related inflation risks loom, though recent reports show no uptick.
- Several Fed members, including potential successors to Powell, have voiced support for rate cuts starting next month.
Powell is scheduled to testify before Congress this week, where he’ll likely face tough questions about the Fed’s rate stance.
🛍️ Consumer Spending Slows Sharply
Retail sales fell by 0.9% in May compared to April—a much steeper decline than expected. This marks two consecutive months of pullback, possibly driven by consumers front-loading purchases ahead of potential tariff-driven price hikes.
- Retail sales are a key indicator of consumer confidence and economic health.
- Continued weakness could reinforce the case for rate cuts.
📉 Labor Market Shows Signs of Strain
Initial jobless claims rose to 245,000 last week—among the highest levels since October. Continuing claims hit 1.945 million, staying above 1.9 million for four straight weeks.
- Rising continuing claims suggest fewer people are finding new jobs as benefits expire.
- This trend points to a slowing labor market and could influence future Fed decisions.
🌍 Geopolitical Tensions and Oil Prices
Over the weekend, the U.S. bombed three Iranian nuclear sites. Iran responded with threats to close the Strait of Hormuz—a vital oil shipping route.
- Closure could spike global oil prices and reignite inflation concerns.
- China, which relies heavily on oil through the Strait, has stated it will not allow a shutdown.
- As a result, oil prices have actually declined to start the week.
📉 Bond Yields Drop—Mortgage Rates Follow
The 10-year Treasury yield, a key benchmark for mortgage rates, has fallen to its lowest level since May 8th. This is welcome news for borrowers, as lower yields typically translate to lower mortgage rates.
📅 What to Watch This Week
This week could be pivotal for mortgage rates and bond markets:
- Tuesday–Wednesday: Fed Chair Powell testifies before Congress.
- Thursday: Latest GDP report released.
- Friday: PCE inflation report—closely watched by the Fed—is expected to come in low.
If inflation data confirms a cooling trend, we could see further declines in bond yields and mortgage rates. Volatility is likely, but the setup favors borrowers in the short term.
John Lamberg
MORTGAGE LOAN ORIGINATOR
NMLS 189233
